growing the business Flashcards
2.1
methods of business growth:
- internal (organic)
- external (inorganic)
- internal sources of finance
- external sources of finance
what is internal growth (organic)
- new products
- new markets
new products =
- innovation
- research and development
how can a business enter new markets
- through changing of marketing mix
- taking advantage of technology
- expanding overseas
external growth =
- merger
- takeover
type of business ownership for growing a business
public limited company (plc)
sources of finance for growing and establishing business
- internal sources
- external sources
methods of internal sources of finance
- retained profit
- selling assets
the examples of external sources of finance
- loan capital
- share capital
- stock market flotation (plc)
why does a business whant to grow
- increase market share
- profit
- revenue
- franchise, expand
advantages of internal growth
- low risk
- maintain own values without interference of stakeholders
- higher prouduction = economies of scale and lower average costs
basic advantages of internal growth
- lower risk
- build on businesses strengths
disadvantage of internal growth
- slower
- may be longer time between investment and return on investement
- growth may be limited and is dependent on teh reliability of sales forcast
basic disadvantages of internal growth
slower
methods of external growth: horizontal integration
- when two competitor join through merger or takeover -> new business becomes more competitive
-> increase in market share
methods of external growth: forward vertical integration
- a business takes control with another that operates at a later stage in teh supply chain
methods of external growth: backward vertical integration
- business takes control of a business earlier in teh supply chain
methods of external growth: conglomerate integration
- unrelated markets join through a takeover or merger
-> businesses to spread their risk over a wide range of products and services
advantages of external growth
- competition cna be reduced
- market share can be increased quickly
disadvantages of external growth
- expensive
- managers may lack experience to deal with teh other businesses
basic advantages of external growth
- quick
- expertise of both can be shared
- access to customers from both businesses
what is a plc
- when shares are sold to the public on teh stock market
- shareholder become part owners
- take part of profit
advantages of being a plc
- able to raise aditional finance through share capital
- limited liability
- increased neogtiation opportunites with suppliers in terms of prices because larger businesses can achieve econmois of scale
why does a business sell shares on stock exchange
could
- access large capital
-> supporting growth
disadvantage of being a plc
- expensive to set up
- more complex accounting and reporting requierments
- greater risk of hostile takeover by rival company
*hostile takeover = takeover of one company by another that is aacomplisged without the agreemenet of the target companies managament
-> the acquirer apporaches companies shareholders diereclty
advantages of retained profit
- cheap
- quick and convenient
- easy access to money
disadvantages of retianed profit
- once money is gone its not available for any future unforseen problems the business might face
basic disdvantages of internal sources of finance
- slow
- amount is limited - depends on prfit
- opporutinites could be missed
advantages of selling assets
- convenient
- can create space for more profitable uses
- quick
disdavantages of sellign assets
- might not get full market value of assets
- or be able to sell assets
- may also need the assets in teh future
advantages of owners savings as internal sources of finance
- cheap
- quick
- convenient
disadvantages of owners savings
- owner might not have enough savings or
- may need the cash for personal use
advantages of loan capital
- regular payments are madae over a period of time
disdvantages of loan capital
- interest
- can take a while to be approved and the business may not even qualify
- banks may ask for collateral (security of repayment)
advantages of share capital
- not repaid
- no interest
- business cna choose to whom it offers shares
disdvantages of share capital
- profits made by the business are paid to the shareholders (dividends)
-> so control gets diluted
advanatge of stock market flotation
- can raise large amounts of capital (as it is easy for public to buy shares)
- no interest
- shares do not have to be repaid
- business cna gain recognition
disdvantages of stock market flotation
- can be complicated and expensice and psoibliyt of losing control as anyone can buy shares
- profits are paid to shareholders
- reocrds made public
- risk that investors will only buy shares ot make quick profit by sellign them when the share price increases
why do business aims and objectives change as the business evolves
as a response to
- market conditions
- technology
- performance
- legislation
- internal reasons
how do business aims and objective change as the business evolves
- focus on survival or growth
- entering or exiting markets
- growing or reducing the workforce
- increasing or decreasing product range
why does a business change its objectives and aims due to legislation
- set of laws that specifically govern how they operate
-> must comply with them
examples of legislation that would affect business aims and objectives
- minimum wage
- health and safety
- recruitment
- equality act
- safety at work act
- payment
why might a business want to grow by entering new markets
- reach different demographics
-> so develop a new target marekt
-> so reach more customers
-> more profit
why might a business want to exit a market
- poor perfomrance
- shrinking market
- new market opening up
- business failing overall
—– survival strategy
retrecnhement
- downsising operations
why might a business reduce workforce (retrenchment)
- not performing well
-> survival strategy
-» help reduce costs
-»> get more profit
why might a business decrease the product range (retrenchment)
- not generating enough revenue
-> allow them to focus on existing products
-» or develop a new product range in different sector
-»> to lower costs
-»» gain profit
why might a business increase the product range
- to compete with other businesses
-> helps manage risk
-»because if product is not performing well the business can rely on its other products
-»> to produce more revenue
